CFA Institute CFA-LEVEL-1 Online Practice Questions and Exam Preparation

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 1321:

  Which of the following is not a valid reason for selecting a sample instead of studying the whole population?

  A. All of these answers reasons are valid
  B. Sample results have more accuracy than population results
  C. Cost of studying an entire population can be too high
  D. Population can be destroyed in the process of studying it
  E. Study of the population can be too time consuming
  B. Sample results have more accuracy than population results

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  Explanation

  Sample results cannot be more accurate since it is based on a subset of the population.

• Question 1322:

  Assume that Polaroid decides to build a camera-research facility in Twin Falls, Idaho. The plant will employ 1,000 workers who will be guaranteed full-time jobs at annual earnings of $25,000. If the marginal propensity to consume in Twin Falls is 3/4, what change in income will result from operation of the plant for one year?

  A. $75 million
  B. $50 million
  C. $25 million
  D. $100 million
  D. $100 million

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  Explanation

  The expenditure multiplier is found by M = 1/(1-MPC). Thus, here M = 1/(1-3/4) = 4. Therefore the 1,000 x $25,000 = $25 million increase in aggregate expenditures is magnified four times to $100 million.

• Question 1323:

  The supply curve for British pounds in the foreign exchange market:

  A. is independent on the purchases of British goods by foreigners.
  B. none of these answers.
  C. is dependent on the purchases of foreign goods by the British.
  D. is dependent on the purchases of British goods by foreigners.
  C. is dependent on the purchases of foreign goods by the British.

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  Explanation

  The supply curve for pounds is dependent on the purchases of foreign goods by British citizens. An increase in the foreign price of the pound means that a pound will purchase more foreign currency and more goods priced in terms of foreign currency. The British buy more from abroad and therefore supply more pounds to the market as the foreign price of the pound rises.

• Question 1324:

  On a survey questionnaire, students were asked to indicate their class rank in college. If there were only four choices from which to choose, which measure(s) of central tendency would be appropriate to use for the data generated by that questionnaire item?

  A. Mean and mode
  B. Mode only
  C. Mode and median
  D. Median only
  E. Mean and median
  C. Mode and median

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  Explanation

  We can discard the mean since it is not appropriate here. If we want to find out which class has the most students or where the students are most frequently ranked, then the mode and median should be used.

• Question 1325:

  Total assets/equity measures ________.

  A. financial leverage
  B. net profit margin
  C. retention rate
  D. operating performance
  A. financial leverage

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  Explanation

  Total assets divided by equity measures financial leverage.

• Question 1326:

  What is the relationship between the variance and the standard deviation?

  A. Variance is the square root of the standard deviation
  B. None of these answers
  C. No constant relationship between the variance and the standard deviation
  D. Variance is twice the standard deviation
  E. Variance is the square of the standard deviation
  E. Variance is the square of the standard deviation

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  Explanation

  The variance is the mean of the squared deviations from the mean. The standard deviation is the positive square root of the variance.

• Question 1327:

  Excerpts from the balance sheet of Milton Corporation as of April 30, 1997 are presented as follows:

  Cash $725,000 Accounts receivable (net) $1,640,000 Inventories $2,945,000 Total current assets $5,310,000 Accounts payable $1,236,000 Accrued liabilities $831,000 Total current liabilities $2,067,000

  The board of directors of Milton met on May 5, 1997 and declared a quarterly cash dividend in the amount of $200,000 ($0.50 per share). The dividend was paid on May 28, 1997 to shareholders of record as of May 15, 1997.

  Assume that the only transactions that affected Milton during May 1997 were the dividend transactions. If the dividend declared by Milton had been a 10% stock dividend instead of a cash dividend, Milton's total shareholders' equity would have been

  A. unchanged by either the dividend declaration or the dividend distribution.
  B. increased by the dividend declaration and unchanged by the dividend distribution.
  C. decreased by the dividend declaration and increased by the dividend distribution.
  D. unchanged by the dividend declaration and decreased by the dividend distribution.
  E. increased by the dividend declaration and decreased by the dividend distribution.
  A. unchanged by either the dividend declaration or the dividend distribution.

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  Explanation

  The declaration and distribution of a stock dividend involves transferring an amount from retained earnings to common stock. However, the total shareholders' equity remains the same.

• Question 1328:

  Your investment rate of return is 6% per year and you invest according to the following schedule:

  Beginning of year 1: $100 Beginning of year 2: $200 Beginning of year 3: $300 Beginning of year 4: $400

  The amount you will have at the end of year 4 is:

  A. $1,125
  B. $640
  C. $808
  D. $845
  A. $1,125

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  Explanation

  This is a future value question. The amount at the end of year 4 = 100*(1.06^4) + 200*(1.06^3) + 300*(1.06^2) + 400*1.06 = 1,125

• Question 1329:

  According to Standard IV (B.7), Disclosure of Conflicts, the most prevalent conflict pertains to ________.

  A. members' ownership of stock in companies they recommend
  B. broker-sponsored limited partnerships formed to invest venture capital
  C. service on a board of directors
  D. none of these answers
  A. members' ownership of stock in companies they recommend

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  Explanation

  Under Standard IV (B.7), Disclosure of Conflicts, the most prevalent conflict pertains to members' ownership of stock in companies they recommend. To avoid discrimination against members, sell-side members should disclose any materially beneficial ownership interest in a security or other investment that the member is recommending. Buy-side members should disclose their procedures for reporting requirements for personal transactions.

• Question 1330:

  Which of the following is considered a characteristic of a liability?

  A. A liability represents a claim against a company's present and future assets and resources.
  B. A liability requires the rendering of future services.
  C. All of these answers.
  D. A liability requires the payment of money.
  E. A liability represents a claim that is usually senior to the holders of equity securities.
  C. All of these answers.

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  Explanation

  By definition, a liability is a financial obligation that requires the payment of money, or the rendering of future services. It is a claim against the business that must be satisfied in one way or another. Lastly, liabilities are claims that have a higher level of priority than equity as it relates to the distribution of income, or assets.